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B. Nagalakshmi Vs. Mannargudi Transports (Pvt.) Ltd. and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtChennai High Court
Decided On
Case NumberC.P. No. 24 of 1967 and Comp. Appln. No. 101 of 1967
Judge
Reported inAIR1968Mad317
ActsCompanies Act, 1956 - Sections 159, 428, 433, 439(1) and 439(4)
AppellantB. Nagalakshmi
RespondentMannargudi Transports (Pvt.) Ltd. and ors.
Cases ReferredOwnen Mountain v. Inland Revenue Commissioners
Excerpt:
company - winding up - sections 159, 428, 433, 439 (1) and 439 (4) of companies act, 1956 - petition for winding up filed by deceased share holder's wife - petitioner not applied for transfer of shares in her name for being successor of deceased and to get her name included in register of company - petitioner whose name is not included in register has no legal capacity to file company petition - held, petition dismissed for want of locus standi. - - on this ground also the petition should fail......case, articles 15 and 19 give a right of veto to the board to reject applications for transfer of shares to legal representatives and demand a sale of the same for a fair price to the existing shareholders. it is unnecessary to speculate as to what is likely to happen and how the board is likely to treat and dispose of an application for transfer, as no such application has been made so far by the petitioner. i accept the preliminary objection raised by the respondents that this petition is not maintainable. this company is practically held by members of a family and near relatives. there appears to be internal dissensions as between family members and class relations. i do not think this is a fit case for grant of costs. the application is dismissed but without costs.g.g.m.(10).....
Judgment:
ORDER

(1) Petitioner B. Nagalakshmi claiming herself to be a contributory, and therefore a member, file this petition under Secs. 433(b) and (f) and 439(1)(c) of the Companies Act, I of 1956, asking for the winding up of the company Mannargudi Transport (Pvt.) Ltd. The relevant facts are as follows:--

(2) The petitioner was originally allotted 125 shares at a meeting held in July 1959; but on 23-7-1960, all the 125 shares of the petitioner were transferred to the 2nd respondent, and thereafter the petitioner ceased to be a member of the company. Her husband Balasubramania Odayar had a total shareholding of 400 shares. It appears that after the death of Balasubramania Odayar there were some disputes about the heirs of Balasubramania Odayar and the petitioner was claiming the entire 400 shares to be transferred in her name. The 2nd respondent who is the mother of Balasubramania Odayar, is also another heir entitled to share in the estate of Balasubramania Odayar.

It appears that till now no request has been made to the company for the transfer of the shares with the share certificates, succession certificate and such other document which would enable the Board to take action under the relevant articles of the company. It is also significant to note that under the relevant articles of the company, the company has the right, in case of such devolution of shares on the death of a shareholder, to compel the heirs on production of the certificates of heirship and succession, to sell such shares at a fair market price to the other shareholders of the company without exercising their discretion to transfer the same in the names of the respective heirs who request for such transfer. In other words, the discretion vested in the Board to accept the transfer and the request of the heir of the deceased shareholder, or to compel them under Arts. 15 and 19 to sell the same to the other shareholders of the company at a fair price to be fixed in accordance with the procedure indicated in the said articles are both concurrently envisaged in such articles. In the instant case, however, no application for transfer of the shares in the manner contemplated both in law and under the articles has been made. The net result is that the petitioner's name does not appear in the register of members of the company and the main objection of the respondents in this case is that the petitioner not being a member as on date or as on the date when the petition for winding up was filed, and she not having been registered as such in the register of members, has no locus stand to present this petition and therefore this petition has to be thrown out in limine.

The petitioner, of course, has made many allegations against the respondents and the company; to wit, her complaint is that accounts are not properly maintained, no general body meeting is held, no dividends are declared every year, borrowings without authority are being made, the company is sustaining loss, there are internal dissensions amongst the members and finally they say that the minority is oppressed by the majority. The Registrar of Companies has also filed an affidavit and has stated that the 125 shares held by B. Nagalakshmi is shown transferred in the name of C. Mangalam and others in the annual return made up to 14-11-1960 filed under Sec. 159 of the Companies Act, and unqualified reports of the Auditors for the years beginning from 1960 and ending with 1965 have been made and ultimately he leaves it to the Court to pass such orders as may be just and necessary.

(3) the main contention of the respondents, therefore, is that this application is not maintainable in law and, therefore, an investigation or a delve into the merits of the case is not necessary. There is force in this contention. If it is ultimately held that the member has no locus standi on the ground that the petitioner's name does not appear in the register of members, then it becomes unnecessary for me to consider the various complaints catalogued by the petitioner and projected in support of her application for winding up of the company.

(4) The respondents have argued this objection as to maintainability as a preliminary point and I heard the counsel on both sides on the same.

(5) The petition for winding up is filed under Sec. 439(c) read with Ss. 439(4) and 433(b) and (f) of the Act. The term 'contributory', who can apply for winding up, is defined in S. 428 of the Act. It is an inclusive definition. It includes the holder of any shares which are fully paid up. It is now fairly settled that members past and present and their legal representatives can present a petition for winding up. The sine qua non is that the petitioner should be a member. In all companies having a share capital, the expressions 'member, shareholder and holder of shares' are 'inter-changeable terms'. If, as a result of death, shares devolve on more than one legal representative of the deceased shareholder, then such holders, though entitled to a share in the entirety of the holders, though entitled to a share in the entirety of the holdings, it cannot be predicated with certainty as to what is the precise and defined interest of each of such representatives in the shares of the deceased.

As Sir William Markby in his book on 'Elements of Law', 6th Edn. at p. 389, says:

'At the death, neither the heir nor the legatee has a right to claim any portion of the moveable estate; they do not in any way succeed to the deceased. The whole of their right consists in this to call upon those who are administering the estate to proceed according to law.'

Even the Court is not bound to allot an aliquot share of each species of property to each of the parties see the observations of Venkataramana Rao, J., in Khatoon Bibi v. Abdul Wahab AIR 1939 Mad 306. Until the net assets are ascertained by consent or otherwise, by due process of law, the legal representatives cannot be said to have a specific interest in any part of such residuary estate. It is apposite to quote the language of Younger, J., which was adopted by Evershed M. R. in In re Cunliffe-Ownen Mountain v. Inland Revenue Commissioners, 1953 1 Ch. 545:

'............... and interest in an intestate's estate is sufficiently specific to raise a case of election representing as that interest does all the money's worth of the property comprised therein, but that such interest is not sufficiently specific, apart from agreement with the next of kin where there are more than one, to enable any one of the next of kin to say to the administrator 'This or that thing is mine. Hand it over to me.'

In the instant case, no succession certificate has been obtained by the petitioner or any other heir of Balasubramania Odayar. Besides the petitioner, there are other heirs. in the absence of any division or specification of the petitioner's interest in the shares of late Balasubramania Odayar, the petitioner cannot claim that she has a distinct, defined and identifiable share in the shareholding of the late member.

(6) Therefore, even assuming that the petition is maintainable, the petitioner cannot present this petition in the absence of a reckoning of her shares and her interest in the erstwhile shareholding of late Balasubramania Odayar. The application is premature.

(7) Section 439(4) prescribes certain mandates before a petition for winding up by a contributory can be entertained. For our purposes it is enough if reference is made to Clause (b) of S. 439(4) which runs thus:

'A contributory shall not be entitled to present a petition for winding up a company unless....... (b) the shares in respect of which he is a contributory, or some of them, either were originally allotted to him or have been held by him, and registered in his name, for at least six months during the 18 months immediately before the commencement of the winding up, or have devolved on him through the death of a former holder.'

Prima facie it appears that a contributory whose name appears in the register at least six months during the 18 months immediately before the commencement of the winding up can file a petition; such a prescription as to time-limit does not seem to apply in case the petitioner is a legal representative on whom shares have devolved through the death of a former holder. In my view, I do not think that such an invidious distinction was ever contemplated by the Legislature. There is no such intendment or reason for such intendment. Excepting for the arrangement of the text of the sub-section which lends prima facie support to such a conclusion, such an obvious discriminatory treatment as between a member an a legal representative of a member cannot be easily countenanced. There should be a great and a compelling reason to encourage such a marked distinction resulting in discrimination. To accept the text as it would mean that what a member on the register cannot do, can be done by the legal representative of a former member.

(8) The language used S. 439(4) is plain; but while working out the mandates prescribed therein, certain unreasonableness sets in when we are posed with the difference in the privileges granted to the two classes of persons envisaged under the section. In my view, there is no necessity at all to make any distinction between the above two sets of persons. A member on the register is on the same level as another legal representative on whom shares of a deceased member devolve. But the former should in a given case, wait for six months to file a petition for winding up and the latter need not. As it is normal to adopt the intention which is in consonance with justice, reason and convenience, while interpreting the meaning of the language in a particular section of a statute, I am of the view that the prescription as to time applies to both classes of persons.

Indeed, Sri V.K. Thiruvenkatachariar invited my attention to this apparent anomaly and desired that I should express my view. As I said, I am not inclined to literally read the text as it is a slight realignment of the section as under would bring out the true effect of it and avoid all controversy about the problem posed:

'A contributory shall not be entitled to present a petition for winding up a company unless.......... (b) the shares in respect of which he is a contributory, or some of them, either were originally allotted to him or have been held by him, or have devolved in whom through the death of a former holder, and registered in his name, for at least six months during the 18 months immediately before the commencement of the winding up.'

The petitioner in this case claims by devolution of interest in the shares of the deceased Balasubramania Odayar, she has not shown that prior to this petition for winding up, she has held shares in her own name for at least six months during the 18 months before the application. On this ground also the petition should fail.

(9) The third and most formidable ground on which the learned counsel opposes this application for winding up is that it is not maintainable in law. in the summary of facts as I have stated that the petitioner, but for the devolution of the shares of her deceased husband, is not a member of the company. Her name is not in the register of shares kept by the company. The petitioner does not dispute this but states as the wife of the deceased, she is entitled as of right to be recognised by the Board as a shareholder and such a right is by itself sufficient to maintain the petition. The petitioner has not made any application for transfer of shares either by herself or in conjunction with other heirs. The respondents rightly point out that Articles 15 and 19 of the company's articles are a bar to the maintainability of the petition. They also contend that before the petitioner's name is found in the register of members and recorded as such, she has no locus standi to file an application for winding up. There is considerable force in this contention. However genuine and whatever may be the nature of the potential in the claim of the petitioner to get herself registered as a member of the company, yet in the absence of such a record, as a matter of fact, this application by her based on mere expectation is not maintainable.

For any legal proceeding to be initiated by one, the said person should have the legal capacity to maintain the same. here such a capacity is absent. In In re, H.L. Bolton Engineering Co., Ltd., 1956 2 WLR 844, Wynn Parry, J., observed that a trustee in bankruptcy, who had not obtained registration of the bankrupt's shares in his own name had no locus standi as a contributory to present a petition for winding up. It also stands to reason that a person whose name appears in the register should so file a petition. Otherwise, any person can come to Court for winding up of any company and try to harass and cause inconvenience to the company and the Board of Management. Further, the petitioner has a right to seek for a rectification of the register, if her claim to be registered as a member is unlawfully and unreasonably refused by the Board. In this case, Articles 15 and 19 give a right of veto to the Board to reject applications for transfer of shares to legal representatives and demand a sale of the same for a fair price to the existing shareholders. It is unnecessary to speculate as to what is likely to happen and how the Board is likely to treat and dispose of an application for transfer, as no such application has been made so far by the petitioner. I accept the preliminary objection raised by the respondents that this petition is not maintainable. This company is practically held by members of a family and near relatives. There appears to be internal dissensions as between family members and class relations. I do not think this is a fit case for grant of costs. The application is dismissed but without costs.

G.G.M.

(10) Petition dismissed.


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